The field of financial mathematics has developed tremendously over the past thirty years, and the underlying models that have taken shape in interest rate markets and bond markets, being much richer ...in structure than equity-derivative models, are particularly fascinating and complex. This book introduces the tools required for the arbitrage-free modelling of the dynamics of these markets. Andrew Cairns addresses not only seminal works but also modern developments. Refreshingly broad in scope, covering numerical methods, credit risk, and descriptive models, and with an approachable sequence of opening chapters, Interest Rate Models will make readers--be they graduate students, academics, or practitioners--confident enough to develop their own interest rate models or to price nonstandard derivatives using existing models.
The mathematical chapters begin with the simple binomial model that introduces many core ideas. But the main chapters work their way systematically through all of the main developments in continuous-time interest rate modelling. The book describes fully the broad range of approaches to interest rate modelling: short-rate models, no-arbitrage models, the Heath-Jarrow-Morton framework, multifactor models, forward measures, positive-interest models, and market models. Later chapters cover some related topics, including numerical methods, credit risk, and model calibration. Significantly, the book develops the martingale approach to bond pricing in detail, concentrating on risk-neutral pricing, before later exploring recent advances in interest rate modelling where different pricing measures are important.
Firms often disclose information security risk factors in public filings such as 10-K reports. The internal information associated with disclosures may be positive or negative. In this paper, we ...evaluate how the nature of the disclosed security risk factors, believed to represent the firm's internal information regarding information security, is associated with future breach announcements reported in the media. For this purpose, we build a decision tree model, which classifies the occurrence of future security breaches based on the textual contents of the disclosed security risk factors. The model is able to accurately associate disclosure characteristics with breach announcements about 77% of the time. We further explore the contents of the security risk factors using text-mining techniques to provide a richer interpretation of the results. The results show that the disclosed security risk factors with risk-mitigation themes are less likely to be related to future breach announcements. We also investigate how the market interprets the nature of information security risk factors in annual reports. We find that the market reaction following the security breach announcement is different depending on the nature of the preceding disclosure. Thus, our paper contributes to the literature in information security and sheds light on how market participants can better interpret security risk factors disclosed in financial reports at the time when financial reports are released.
Building upon the ideas introduced in their previous book, Derivatives in Financial Markets with Stochastic Volatility, the authors study the pricing and hedging of financial derivatives under ...stochastic volatility in equity, interest-rate, and credit markets. They present and analyze multiscale stochastic volatility models and asymptotic approximations. These can be used in equity markets, for instance, to link the prices of path-dependent exotic instruments to market implied volatilities. The methods are also used for interest rate and credit derivatives. Other applications considered include variance-reduction techniques, portfolio optimization, forward-looking estimation of CAPM 'beta', and the Heston model and generalizations of it. 'Off-the-shelf' formulas and calibration tools are provided to ease the transition for practitioners who adopt this new method. The attention to detail and explicit presentation make this also an excellent text for a graduate course in financial and applied mathematics.
Ascertaining which enforcement mechanisms work to protect investors has been both a focus of recent work in academic finance and an issue for policy-making at international development agencies. ...According to recent academic work, private enforcement of investor protection via both disclosure and private liability rules goes hand in hand with financial market development, but public enforcement fails to correlate with financial development and, hence, is unlikely to facilitate it. Our results confirm the disclosure result but reverse the results on both liability standards and public enforcement. We use securities regulators’ resources to proxy for regulatory intensity of the securities regulator. When we do, financial depth regularly, significantly, and robustly correlates with stronger public enforcement. In horse races between these resource-based measures of public enforcement intensity and the most common measures of private enforcement, public enforcement is overall as important as disclosure in explaining financial market outcomes around the world and more important than private liability rules. Hence, policymakers who reject public enforcement as useful for financial market development are ignoring the best currently available evidence.
Codes of finance Lepinay, Vincent Antonin
2011., 20110808, 2011, 2011-08-08, 20110101, 2011-08
eBook, Book
The financial industry's invention of complex products such as credit default swaps and other derivatives has been widely blamed for triggering the global financial crisis of 2008. Codes of Finance ...takes readers behind the scenes of the equity derivatives business at one of the world's leading investment banks before the crisis, providing a detailed firsthand account of the creation, marketing, selling, accounting, and management of these financial instruments--and of how they ultimately created havoc inside and outside the bank.
This book considers some of the fundamental issues concerning the legal framework that has been established to support a single EU securities market. It focuses particularly on how the emerging legal ...framework will affect issuers' access to the primary and secondary market. The Financial Services Action Plan (FSAP, 1999) was an attempt to equip the community better to meet the challenges of monetary union and to capitalise on the potential benefits of a single market in financial services. It led to extensive change in securities market regulation: new laws; new law making processes, and more attention to the mechanisms for the supervision of securities market activity and legal enforcement. With the FSAP nearing completion, it is a good time to take stock of what has been achieved, and to identify the challenges that lie ahead.
Given that information technology (IT) security has emerged as an important issue in the last few years, the subject of security information sharing among firms, as a tool to minimize security ...breaches, has gained the interest of practitioners and academics. To promote the disclosure and sharing of cyber security information among firms, the U.S. federal government has encouraged the establishment of many industry-based Information Sharing and Analysis Centers (ISACs) under Presidential Decision Directive (PDD) 63. Sharing security vulnerabilities and technological solutions related to methods for preventing, detecting, and correcting security breaches is the fundamental goal of the ISACs. However, there are a number of interesting economic issues that will affect the achievement of this goal. Using game theory, we develop an analytical framework to investigate the competitive implications of sharing security information and investments in security technologies. We find that security technology investments and security information sharing act as "strategic complements" in equilibrium. Our results suggest that information sharing is more valuable when product substitutability is higher, implying that such sharing alliances yield greater benefits in more competitive industries. We also highlight that the benefits from such information-sharing alliances increase with the size of the firm. We compare the levels of information sharing and technology investments obtained when firms behave independently (Bertrand-Nash) to those selected by an ISAC, which maximizes social welfare or joint industry profits. Our results help us predict the consequences of establishing organizations such as ISACs, Computer Emergency Response Team (CERT), or InfraGard by the federal government.
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